Introduction to Engineering Economics-Engineering Economics-Lecture Slides, Slides of Microeconomics

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By

Muhammad Shahid Iqbal

Chapter 01

INTRODUCTION TO ENGINEERING

ECONOMICS

Engineering

Economics

Economics

 Economics is a social science that analyzes the production, distribution and consumption of goods and services.

 It studies the economics behavior of the people and economic phenomenon.

 Economic Behavior is a conscious effort to derive maximum gain from scarce resources and opportunities available to them.

 Economic Phenomenon deals with the production and consumption of goods & services and distribution & rendering of these for human welfare.

 Economics is the study of how people allocate their limited resources to their alternative uses to produce and consume goods and services to satisfy their endless wants or to maximize their gains.

 While maximizing their gains people as producers and consumers

have to make choices regarding the use of resources and spending their earnings due to following basic facts of economic life.

 Human wants are unlimited

 Resources available are scarce

 People want to maximize their gains

 Scarcity: means that society has limited resources and therefore

cannot produce all the goods and services people wish to have. Resources scarcity is a relative term it implies that resources are scarce in relation to demand for resources. Scarcity is a mother of all economic problems

Economics

Spending

Goods and Services bought

Revenue

Goods & services sold

Labor, land, and capital

Income = Flow of inputs and outputs = Flow of money

Factors of production

Wages, rent and profit

FIRMS

• Produce and sell goods and services
• Hire and use factors of production - Buy and consume goods and services - Own and sell factors of production

HOUSEHOLDS

• Households sell
• Firms buy

MARKETS FOR FACTORS OF PRODUCTION

• Firms sell
• Households buy

MARKETS FOR GOODS

Flow in an Economy

Long Range Planning

 Long Range planning in Business. The most aspect of management is long range planning.

 The need for long range planning is directed by the increasing no. of economic, social and technological factors which effect the performance of all enterprises. Managerial functions in long range planning  Identifying & forecasting a set of objectives and organization’s goals.  Establishing an overall strategy for achieving those goals  Developing a comprehensive set of plans to integrate and coordinate organizational work.  Committing the required resources to achieve the set objectives.  Planning is concerned with both ends and means.

 Undoubtedly profit maximization is a major objective of

any Business firm and it so assumed in most corporate

planes, however maximizing market share and maximizing

growth should also be the part of planning.

 The basic approach is systematic analysis and evaluation

of economic alternatives for managerial decision making.

 In long run the growth and profitability of the firm depends

on its ability to in crease its productive efficiency and

expand its capacity and product lines.

Long Range Planning

 There is a need of systematic evaluation of Investment

alternatives before a decision is made regarding such

problems.

 Introduction of new product/service/software, the expansion of product facilities, changes in product mix, adoption of new technology.

 Engineering Economics seeks to provide the analytical

framework for decision making from an economic point of

view and to advance the role of engineers in the process of

decision making.

 Generally Engineering Economics deals with methods that

enable organizations to achieve their goals efficiently (Doing things right) and effectively (Doing the right things)

Engineering Economics

 Technical efficiency is the effectiveness with which a given

set of inputs is used to produce an output.

 A firm is said to be technically efficient if a firm is producing

the maximum output from the minimum quantity of inputs, such as labor, capital and technology.

 The concept of technical efficiency is related to productive

efficiency.

 It is the ratio of the effective or useful output to the total input

in any physical system.

 The ratio of the energy delivered by a machine to the energy

supplied for its operation.

Engineering Efficiency

Methods of improving productivity.

 There are several ways of improving productivity.

 Increased output for the same input.  Decreased input for the same output.  By a proportionate increase in the output which is more than the proportionate increase in input.  By proportionate decrease in input which is more than the proportionate decrease in output  Through simultaneous increase in output with decrease in input

 There are two concepts of efficiency: Technological efficiency

occurs when it is not possible to increase output without increasing inputs.

 Economic efficiency occurs when the cost of producing a given

output is as low as possible.

 Technological efficiency is an engineering matter. Given what

is technologically feasible, something can or cannot be done.

 Economic efficiency depends on the prices of the factors of

production.

 Something that is technologically efficient may not be

economically efficient.

 But something that is economically efficient is always

technologically efficient.

Economics Efficiency